No. 16-712

reme (Eourt of iBnitei tate

OIL STATES ENERGY SERVICES, LLC,

Petitioner,

V.

GREENE’S ENERGY GROUP, LLC, et al.,

Respondents.

On Petition For A Writ Of CertiorariTo The United States Court Of Appeals

For The Federal Circuit

REPLY BRIEF FOR THE PETITIONER

C. ERIK HAWESWILLIAM R. PETERSONMORGAN, LEWIS ~ BOCK~US LLP1000 Louisiana Street,

Suite 4000Houston, Texas 77002T. 713.890.5000F. 713.890.5001

ALLYSON N. HoCounsel of Record

JOHN C. SULLIVAN

MORGAN, LEWIS 8~BOCKIUS LLP

1717 Main Street,Suite 3200

Dallas, Texas 75201T. 214.466.4000F. 214.466.4001allyson.ho@morganlewis.com

Counsel for Petitioner

COCKLE LEGAL BRIEFS (800) 225-6964WWW.COCKLELEGALBR1EFS.COM

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TABLE OF CONTENTS

REPLY BRIEF FOR THE PETITIONER ............

I. This Court Should Address Whether InterPartes Review Satisfies Article III ............

A. The Importance And Ripeness Of ThisIssue Are Undisputed ..........................

B. Respondent’s Merits Argument OnlyConfirms The Certworthiness Of TheIssue .....................................................

II.

III.

Page

1

2

4

Alternatively, The Court Should GrantCertiorari To Review The Board’s DenialOf The Motion To Amend ...........................10

This Court Should Grant Certiorari ToClarify The Interaction Of TraditionalPrinciples Of Claim Construction And The"Broadest Reasonable Interpretation" ......12

CONCLUSION .....................................................14

ii

TABLE OF AUTHORITIES

Page

CASES

Bd. of Regents of State Colls. v. Roth, 408 U.S.564 (1972) ..................................................................8

Brown v. Duchesne, 60 U.S. 183 (1856) ........................8

Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,Inc., 467 U.S. 837 (1984) ..........................................10

Consol. Fruit-Jar Co. v. Wright, 94 U.S. 92 (1876) .........8

Crowell v. Benson, 285 U.S. 22 (1932) ..........................6

Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131(2016) ...................................................................1, ii

McCormick Harvesting Mach. Co. v. C. Aultman& Co., 169 U.S. 606 (1898) ....................................8, 9

MCM Portfolio LLC v. Hewlett-Packard Co., 812F.3d 1284 (Fed. Cir. 2015) .....................................3, 9

Murray’s Lessee v. Hoboken Land & Improve-ment Co., 59 U.S. 272 (1855) .................................4, 5

N. Pipeline Constr. Co. v. Marathon Pipe LineCo., 458 U.S. 50 (1982) ..........................................5, 7

Phillips v. Wash. Legal Found., 524 U.S. 156(1998) .........................................................................8

Stern v. Marshall, 564 U.S. 462 (2011) .........1, 4, 5, 6, 9

Texaco, Inc. v. Short, 454 U.S. 516 (1982) .....................8

oo.111

TABLE OF AUTHORITIES--Continued

Page

CONSTITUTIONAL PROVISIONS

U.S. CONST. art. Ill ........................................2, 3, 4, 5, 6

V.S. CONST. amend. VII .................................................4

STATUTE

35 U.S.C. § 315 ..............................................................6

OTHER AUTHORITY

Matt Cutler, 3 Years of lPR: A Look at the Stats,IPLAW360 (Oct. 9, 2015), http://www.law360ocom/articles/699867/3-years-of-ipr-alook-at-the-stats ...........................................................................7

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REPLY BRIEF FOR THE PETITIONER

The constitutionality of inter partes review turnson whether a suit seeking to invalidate a patent in-volves "matter which, from its nature, is the subject ofa suit at the common law, or in equity, or admiralty" ormerely involves "’public rights’ that Congress couldconstitutionally assign to ’legislative’ courts for resolu-tion." Stern v. Marshall, 564 U.S. 462,484, 485 (2011).

The importance of this issue is uncontested. If pe-titioner is correct, then Congress has, in violation ofArticle III, permitted an executive agency to adjudi-cate issues of enormous significance to the nationaleconomy, wrongfully depriving patent owners of prop-erty worth billions of dollars. See Pet. at 21. Given itsunquestionable practical and legal importance, thequestion whether interpartes review complies with Ar-ticle III warrants certiorari.

The Court may also wish to consider certiorari onthe other two questions. In persuading this Court touphold the "broadest reasonable interpretation" stan-dard in Cuozzo Speed Technologies, LLC v. Lee, 136S. Ct. 2131 (2016), the government argued that thisstandard should apply "when it is possible for claimamendments to be made." Oral Argument at 29:30,Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016)(No. 15446). But as petitioner demonstrated (at 19-26),the Board has adopted standards that make amend-ment practically impossible. The Board’s nullificationof the amendment scheme created by Congress de-serves review in this Court.

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Finally, the "broadest reasonable interpretation"standard needs clarification. Panels of the Federal Cir-cuit have divided in their application of traditionalprinciples of claim construction to the "broadest tea-sonable interpretation," and guidance from this Courtwould be valuable.

I. This Court Should Address Whether InterPartes Review Satisfies Article III.

The question whether the executive branch exer-cises "the judicial power of the United States" in interpartes review proceedings deserves review in thisCourt. It is a constitutional issue implicating the basicframework of our government. The legal and practicalimportance is unquestionable.

Respondent argues (at 6-14) only that certiorarishould be denied because the judgment below is cor-rect. But these merits arguments are no reason todeny certiorari. If anything, they highlight that theconstitutionality of inter partes review is an issue ofsubstantial importance that has not been but shouldbe decided by this Court.

A. The Importance And Ripeness Of ThisIssue Are Undisputed.

The petition details (at 32-35) the importance ofthe constitutionality of inter partes review. The Boardhas overturned nearly 80 percent of the patents it hasreviewed, significantly affecting the economy and

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American business. See Pet. at 33 ("According to oneestimate, inter partes review has, thus far, destroyed$546 billion of the United States economy by invalidat-ing patents, and wiped out about $1 trillion in value bydevaluing the companies holding those patents."). Theconstitutionality of inter partes review is at issue inevery one of thousands of proceedings. Respondentdoes not disagree. The practical importance of the is-sue is incontestable.

The same is true of its legal importance. Peti-tioner’s arguments are based on Article III of the Con-stitution and the basic structure of the federalgovernment. Deciding this case will require this Courtto consider and enforce the proper boundaries betweenthe executive and judicial branches, defining what de-cisions Congress may remove from the courts.

The question is fully ripe for resolution. The Fed-eral Circuit set forth its definitive view that interpartes review is constitutional in MCM Portfolio LLCv. Hewlett-Packard Co., 812 F.3d 1284 (Fed. Cir. 2015),and has shown no inclination to reconsider this hold-ing. See Pet. App. 37-38 (denying rehearing en banc).No circuit split could possibly develop. If this Courtdenies review, then the Federal Circuit will have thelast (and only) word on an important question of con-stitutional law.

No further percolation is warranted. The ArticleIII question should be resolved by this Court, and itshould be resolved in this case.

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B. Respondent’s Merits Argument OnlyConfirms The Certworthiness Of The Is-sue.

Respondent suggests only a single reason that cer-tiorari should be denied: The judgment below is cor-rect. E.g., Br. at 2-3 (arguing that the Federal Circuit"correctly held" that inter partes review complies withthe Constitution). Respondent’s merits argument is, ofcourse, no reason to deny certiorari. Whether the Fed-eral Circuit was right or wrong, the issue warrants res-olution by this Court.

And the Federal Circuit was wrong. Article IIIvests the "judicial power" in the judicial branch, and"Congress may not ’withdraw from judicial cognizanceany matter which, from its nature, is the subject of asuit at the common law, or in equity, or admiralty.’"Stern, 564 U.S. at 484 (quoting Murray’s Lessee v. Ho-boken Land & Improvement Co., 59 U.S. 272, 284(1855)).1

Petitioner (at 12-13) and respondent (at 9) agreethat actions seeking annulment or cancellation of pa-tents would have been brought in courts of equity.

1 As respondent acknowledges (at 3-4), whether inter partesreview complies with Article III is a predicate question to deter-mining whether it complies with the Seventh. Amendment. ThisCourt could either grant certiorari to consider only the Article IIIissue or could consider both Article III and the Seventh Amend-ment.

5

Congress cannot withdraw such suits from the judici-ary and reassign them to the executive. Stern, 564 U.S.at 484.

Respondent appears to argue that Article III doesnot apply to suits in equity. See Br. at 9-10 ("Article IIIwould pose no impediment to inter partes review be-cause actions seeking annulment or cancellation of pa-tents * * * were decided by courts of equity."); id. at 11("Even ifscire facias provided a useful analogy to interpartes review, however, ’[t]he scire facias to repeal apatent was brought in chancery’ rather than in law.").But respondent offers no support for this novel propo-sition, and this Court has held that Article III forbidsCongress "to withdraw from judicial cognizance anymatter which, from its nature, is the subject of a suit* * * in equity." Stern, 564 U.S. at 484 (quoting Mur-ray’s Lessee, 59 U.S. at 284). Respondent’s argumentthat suits to annul patents would have been broughtin courts of equity is no answer to Article III.

Respondent may have misread Stern. The factthat a suit "made of’the stuff of the traditional actionsat common law tried by the courts at Westminster in1789’" must be tried in an Article III court, Stern, 564U.S. at 484 (quoting N. Pipeline Constr. Co. v. MarathonPipe Line Co., 458 U.S. 50, 90 (1982) (Rehnquist, J., con-curring in judgment)), does not imply that Article IIIapplies only to such suits. If they were historicallytried in courts of equity, then the Patent and Trade-mark Office impermissibly exercises "the judicialpower of the United States" by deciding them.

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Respondent also argues (at 8-11) that patents are"public rights," which may be adjudicated outside anArticle Ill forum. This Court has recognized that the"public rights" doctrine permits Congress to assigncases outside the judicial branch for resolution whileacknowledging the uncertain scope of this exception:"[O]ur discussion of the public rights exception * * *has not been entirely consistent, and the exception hasbeen the subject of some debate[.]" Stern, 564 U.S. at488.

In Stern, this Court contrasted cases arising "be-tween the Government and persons subject to its au-thority in connection with the performance of theconstitutional functions of the executive or legislativedepartments" with cases "that were instead matters ’ofprivate right, that is, of the liability of one individualto another under the law as defined.’" Id. at 489 (quot-ing Crowell v. Benson, 285 U.S. 22, 50, 51 (1932)).

Inter partes review does not fit neatly into eithercategory. Although the process formally involves re-consideration of the executive branch’s decision to is-sue a patent, the initiation of review by adversarialparties and their participation in the process trans-forms inter partes review (as respondent recognizes at20) into "a litigation-like proceeding." The statute rec-ognizes that inter partes review will often be initiatedby an accused infringer. See 35 U.S.C. § 315(b) ("Aninter partes review may not be instituted if the petitionrequesting the proceeding is filed more than I year af-ter the date on which the petitioner, real party in in-terest, or privy of the petitioner is served with a

7

complaint alleging infringement of the patent."); id.§ 315(a)(2) (providing for a stay of a civil action). Andin practice, inter partes review is initiated most oftenby parties accused of infringing a patent. See, e.g.,Matt Cutler, 3 Years of IPR: A Look at the Stats,IPLAW360 (Oct. 9, 2015), http://www.law360.comJarticles/699867/3-years-of-ipr-alook-at-the-stats ("Over 80 per-cent of IPR filings are associated with co-pendingfederal court litigation."). Inter partes review thus de-termines "the liability of one individual to another."

The plurality opinion in Northern Pipeline statesthat the public rights exception extends "only to mat-ters that historically could have been determined ex-clusively by [the political branches of government]."458 U.S. at 68 (plurality opinion). Petitioner (at 12-13)and respondent (at 9) have identified only one histori-cal analogue of an adversarial proceeding to adjudicatepatent validity: the English writ scire facias awardedby Chancery courts.2 There is no historical precedentfor the executive branch adjudicating patent validityin an adversarial, "litigation-like" (Br. at 20) proceed-ing.

Respondent argues (at 8, 10) that patents mustbe public rights (rather than private property) becausethey "exist only by virtue of a federal statutoryscheme." But this argument proves far too much.

2 Respondent rejects (at 9) the analogy but does not identifyany other historical adversarial proceeding (other than infringe-ment suits) in which patent validity was adjudicated.

8

Property interests are frequently grounded inlaws and regulations. E.g., Texaco, Inc. v. Short, 454U.S. 516, 526 (1982) ("[A] State may create a propertyinterest that is entitled to constitutional protection.")."Because the Constitution protects rather than createsproperty interests, the existence of a property interestis determined by reference to ’existing rules or under-standings that stem from an independent source suchas state law.’" Phillips v. Wash. Legal Found., 524 U.S.156, 164 (1998) (quoting Bd. of Regents of State Colls.v. Roth, 408 U.S. 564, 577 (1972)). The mere fact that aproperty interest arises out of federal law cannot makethat interest a "public right."

This Court has long held that patents constituteprivate property: "[B]y the laws of the United States,the rights of a party under a patent are his privateproperty." Brown v. Duchesne, 60 U.S. 183, 197 (1856);see also Consol. Fruit-Jar Co. v. Wright, 94 U.S. 92, 96(1876) ("A patent for an invention is as much propertyas a patent for land"). The fact that federal law createsprivate property interests does not permit the execu-tive branch to displace the judicial in cases involvingthose interests.

Respondent has no answer to (and does not evencite) this Court’s decision in McCormick HarvestingMach. Co. v. C. Aultman & Co.:

[After a patent has been issued by the patentoffice,] it * * * is not subject to be revoked orcanceled by the president, or any other officer

9

of the government. It has become the prop-erty of the patentee, and as such is entitled tothe same legal protection as other property.

The only authority competent to set a pa-tent aside, or to annul it, or to correct it forany reason whatever, is vested in the courts ofthe United States, and not in the departmentwhich issued the patent.

169 U.S. 606, 608-09 (1898) (internal citations omit-ted). This Court has never overruled or retreated fromthis holding.3

Similarly, any number of federal causes of action"exist only by virtue of a federal statutory scheme." Bystatute, Congress may create new rights and liabilitiesthat did not exist at common law, but an adjudicationof rights between individuals still constitutes a "mat-ter which, from its nature, is the subject of a suit at thecommon law, or in equity, or admiralty." Stern, 564 U.S.at 484.

In sum, the proper bounds of"the judicial power ofthe United States" are a matter of grave constitutionalconcern, which this Court--not the Federal Circuit--should decide. The practical consequences of inter

3 The Federal Circuit has characterized McCormick asmerely describing the law under existing statutes. MCM PortfolioLLC, 812 Fo3d at 1289. This is an implausible reading. The lanJguage used by this Court--"[A patent] has become the property ofthe patentee, and as such is entitled to the same legal protectionas other property." strongly indicates that the holding concernsconstitutional protections of patents and patent owners. SeeMcCormick, 169 U.S. at 609.

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partes review are indisputable, and respondent identi-ties no vehicle problems (there are none) that wouldinterfere with consideration of the issue in this case.Certiorari should be granted.4

II. Alternatively, The Court Should GrantCertiorari To Review The Board’s DenialOf The Motion To Amend.

If the Court does not review whether inter partesreview complies with the Constitution, then it shouldstill review the procedures imposed by the Board.

Again, respondent answers on the merits, arguing(at 16-29) that the Board’s procedures survive scrutiny

under Chevron, U.S.A., Inc. v. Natural Resources De-fense Council, Inc., 467 U.S. 837 (1984). But respon-dent cannot deny (and does not even address) thatexperience has proven the Board’s amendment proce-dures to be illusory. As petitioner explained (at 23), inthousands of inter partes review proceedings over athree-year period, only three opposed motions toamend succeeded.

4 As a predicate matter, the Court may wish to ask respon-dent U.S. Patent and Trademark Office--which waived a responseon December 12, 2016--to respond to the petition as well. ThePTO intervened in this case in the Federal Circuit primarily todefend the constitutionality of inter partes review, but the FederalCircuit resolved that issue in MCM during the pendency of brief-ing in the instant case.

11

Even if, as respondent argues (at 16-29), each in-dividual procedural rule adopted by the Board sur-rives scrutiny when viewed in isolation, thecombination creates a draconian system that effec-tively eliminates the statutory right to amend createdby Congress. Respondent cannot defend the amend-ment process as a whole.

This Court’s decision in Cuozzo underscoresthe need for review. The government argued to thisCourt that the "broadest reasonable interpretation"standard should apply "when it is possible for claimamendments to be made." Oral Argument at 29:30,Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016)(No. 15446). But under the Board’s regulations,amendment is practically impossible. The Courtshould grant review to hold that the Board cannot nul-lify the opportunity for amendment established byCongress.

Respondent’s waiver arguments (at 15-16) arebaseless. Before the Federal Circuit, petitioner argued,at length, that "the Board erred in denying Oil States’motion to amend," Br. of Appellant at 43-51, includingarguing that the Board’s requirements for amendment"were imposed sua sponte during an oral hearing." Id.at 44.

And with respect to the "broadest reasonable in-terpretation" standard, respondent misunderstands(at 15, 29) the petition. Petitioner does not argue thatCuozzo (and the "broadest reasonable interpretationstandard") should be overturned but argues instead

12

(at 24-25) that this standard is premised on the exist-ence of a meaningful opportunity to amend, which doesnot exist under the Board’s regulations.

If this Court does not review the constitutionalityof inter partes review, then it should grant review toafford patent owners a meaningful opportunity toamend claims during inter partes review, as requiredby Congress.

III. This Court Should Grant Certiorari To Clar-ify The Interaction Of Traditional PrinciplesOf Claim Construction And The "BroadestReasonable Interpretation."

The Court should also grant certiorari to clarifyhow the "broadest reasonable interpretation" standardinteracts with traditional principles of claim construc-tion.

As petitioner explained (at 26-32), panels of theFederal Circuit have struggled with balancing tradi-tional principles of claim construction with the "broad-est reasonable interpretation" in inter partes review.Petitioner identified the specific principle that theBoard failed to apply in this case: "[T]he Board’sanalysis did not consider disparagement by the ’053Patent--dispositive on this issue--in its claim con-struction." Pet. at 30.

Respondent attempts (at 30-33) to defend theBoard’s decision on the merits. But respondent cannotclaim that the Board considered disparagement in its

13

construction. The word "disparage" appears only oncein the Brief in Opposition: "[A]ccording to Petitioner,the PTO needs to adopt its narrow construction of theterm because the ’053 patent disparaged certain priorart devices." Br. at 30.

Petitioner’s argument thus goes unanswered: TheBoard’s conclusion that "the patent claims should beconstrued to include the same two aspects of the priorart that the patent disparaged" is "directly at oddswith * * * traditional principles of claim construction."l~et. at 30.

This makes the case a strong vehicle to clarifywhether and how traditional principles of claim con-struction apply under the "broadest reasonable inter-pretation" standard. As this case illustrates, whetherthese traditional principles apply will often determinea patent’s validity, and the answer to this questionshould not vary from panel to panel of the Federal Cir-cuit.

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CONCLUSION

The petition should be granted or, in the alterna-tive, the case should be held pending further guidancefrom the Federal Circuit.

Respectfully submitted,

ALLYSON N. HO

Counsel of RecordJOHN C. SULLIVAN

MORGAN, LEWIS & BOCYdU$ LLP

1717 Main Street, Suite 3200Dallas, Texas 75201T. 214.466.4000F. 214.466.4001allyson.ho@morganlewis.com

C. ERIK HAWES

WILLIAM R. PETERSON

MORGAN, LEWIS & BOCKIUS LLP

1000 Louisiana Street, Suite 4000Houston, Texas 77002T. 713.890.5000F. 713.890.5001

Counsel for Petitioner